Is the Party Over?

In retrospect, a sure way to make money starting in early 2009 would have been to have bought share of an index fund that tracked the S&P 500. INX, one of these funds, traded for $683.38 a share at its low point on March 6, 2009. It rose in fits and starts over the years to $2088.37 at the end of 2014. And the fund as well as the S&P 500 has failed to go up any farther this year. In fact it fell to $1961.05 in August before recovering. Is the party over? Has the S&P 500 as a measure of the US economic recovery run its course? Reuters writes about the market slipping as oil prices and weak China data concern investors and traders.

Stock markets worldwide slipped on Tuesday, weighed down by weak China trade figures, while oil came off its worst levels of the day after falling within reach of a seven-year nadir.

Oil prices earlier plumbed lows last seen during the financial crisis as an intensifying supply glut sparked fears the world will run out of storage for crude. U.S. crude hit $36.64 a barrel and Brent hit $39.81, their lowest levels since February 2009, before rebounding.

“The fall in oil prices suggests weak demand globally and has worried investors as they put together their outlook for the coming year,” said Scott Brown, chief economist at Raymond James in St. Petersburg, Florida.

The concerns over a crude glut hit currencies of major oil exporters, with the Canadian dollar and Norwegian crown hitting decade-plus lows against the U.S. dollar. The dollar retreated against the euro and yen, however.

The article refers to a perfect storm for commodity currencies as Chinese imports and exports have fallen monthly for more than a year. The question for traders is if the party is really over and if it is time to short everything or simply hold onto a bit of cash and wait for upside opportunities.

Where Is the Global Economy Going?

The longer term concerns of traders focus on the global economy. When trade picks up so will oil consumption and prices. When trade picks up so will profits for companies around the globe. But for the near and medium term it is useful to watch what is happening in China because when its economy slows so do commodity orders and as profits fall in the developing world so do orders from products from Europe and North America not to mention Japan and China. The International Business Times looks at China trade data and sees more bad news.

China’s exports fell 6.8 percent in dollar terms year-on-year in November, their fifth consecutive monthly drop, according to official figures released Tuesday. The fall was slightly less than the previous month’s 6.9 percent drop but analysts said it was further evidence of pressure on the Chinese economy, the world’s second biggest, which saw GDP growth slow to 6.9 percent in the third quarter of 2015 – its lowest rate for six years.

To the extent that a nation relies on China for its exports the party may be over at least temporarily. However, to the extent that a nation trades with the USA things look better as the U.S. economy has been the bright spot in the global recovery. As oil has declined oil stocks have taken a huge hit. However, prices will not stay low forever. Producers that are losing money will cap wells and stop looking for new oil. The Saudis will eventually tire of low profits and production will fall sufficiently to let prices go up. Anyone who has timed the market correctly will profit from the rise of oil stocks. As always do your own homework before trading.

Disclaimer: Trading and investing involves significant financial risk and is not suitable for everyone. No content on this website should be considered as financial, trading, or investing advice. All information is intended for educational purposes only.